California Unveils Draft Carbon Cap and Trade Plan

SAN FRANCISCO – California released a draft plan on Thursday to reduce the state’s projected greenhouse gas emissions by nearly one-third, in part by creating a cap and trade program that could serve as a blueprint for a national carbon emissions market.

The 77-page “climate change draft scoping plan” lays out the framework for California to meet the goals of a 2006 law signed by Gov. Arnold Schwarzenegger that requires the state to slash its greenhouse gas emissions to 1990 levels by 2020.

This target means electric utilities, industrial users, fuel refiners such as Chevron Corp. and ConocoPhillips and builders will have to lower their combined output of carbon dioxide by one-tenth from today’s levels and 30% from projected 2020 emissions of the gas thought to contribute to global warming.

The success of California’s efforts to scale back greenhouse gas emissions using a mix of regulations and market mechanisms could provide a roadmap for a national standard, largely thanks to the state’s size and the aggressive goals it has set.

“It certainly paves the way,” said Milo Sjardin, head of the North American division of New Carbon Finance, a carbon emissions research and analysis firm. “Any federal program may take some of California’s experience on board,” he said.

The California plan also seeks to expand the amount of electricity utilities such as PG&E Corp. and Edison International generate from renewable resources to 33% by 2020. Today, just 12% of the state’s electricity comes from wind, solar, geothermal and other renewable sources.

Cap and trade to launch in 2012

The nation’s most populous state says it will achieve these ambitious goals by putting in place strict limits on greenhouse gas emissions, caps that give users of fossil fuel a financial incentive to put in place heavier pollution controls.

A key part of this plan is the establishment of a market to allow companies to trade their carbon allowances with companies from neighboring Western states and Canadian provinces that are producing less than their allowed emissions — or that engage in an activity, such as planting trees, that lowers emissions.

The head of the panel charged with implementing the state’s global warming law said board members are using as a model the cap-and-trade program established by the U.S. government to restrict emissions that cause acid rain, which was part of the 1990 Clean Air Act.

“When industry knew they had to come under a cap, they came up with measures that were much cheaper than anyone thought,” said Mary Nichols, chairman of the California Air Resources Board. “Having a cap out there spurs the innovation,” she said in a conference call with reporters.

California’s cap and trade program, set for launch in 2012, will also present national companies with a second set of standards with which to comply. A group of Northeastern states is planning to launch a smaller cap and trade program next year.

The addition of another set of regulations “puts increasing pressure on the federal government to put something in place to level the playing field,” said New Carbon Finance’s Sjardin.

Sens. Joseph Lieberman, an independent from Connecticut and John Warner, a Republican from Virginia, last year introduced a national climate bill – which the Senate tabled in June — designed to cut greenhouse-gas emissions by 70% by 2050.

Both major-party presumptive presidential candidates, Republican Sen. John McCain and Democratic Sen. Barack Obama have said they support a national standard for carbon emissions.

Development of a U.S. carbon-trading market is following the rapid growth of the now $50 billion carbon-trading market in Europe, where corporations have been trading emissions-reductions credits as part of meeting the Kyoto Protocol. California’s market will likely start at a much smaller level. New Carbon Finance’s Sjardin estimates it could reach $10 billion by 2015.

If the entire country were to incorporate such a program, the size of the market could hit $1 trillion by 2020, he says.

In the state’s Senate, the Republican caucus is pushing for a delay of certain parts of the 2006 bill it says make it too expensive for businesses in a time of economic duress.

Nonetheless, the state’s largest utilities are preparing for the state to push through the caps, which will cover 85% of California’s greenhouse gas emissions.

San Francisco-based utility PG&E says 13% of its power comes from renewable energy sources. By 2012, that level should reach about 22%, said Keely Wachs, a spokesman for the utility, which serves 15 million customers in Northern and Central California.

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